Why Is Model N (MODN) Down 8.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Model N (MODN). Shares have lost about 8.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Model N due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Model N Q1 Earnings Miss Despite Higher Revenues
Model N delivered mixed first-quarter fiscal 2024 results, with the top line beating the Zacks Consensus Estimate but the bottom line missing the same. The San Mateo, CA-based company recorded a top-line expansion year over year, driven by strong momentum in all business verticals.
Net Income
On a GAAP basis, the company incurred a net loss of $1.8 million or a loss of 5 cents per share compared with a loss of $4.1 million or a loss of 11 cents per share in the year-ago quarter. Net sales growth year over year led to a narrower loss during the quarter.
Non-GAAP net income rose to $10.9 million or 28 cents per share from $8.7 million or 22 cents per share in the year-earlier quarter. The bottom line missed the Zacks Consensus Estimate by a penny.
Revenues
The company generated $63.5 million in revenues, up 7% year over year. New logo signings, strong renewals and customer base expansions drove the top line. The top line surpassed the Zacks Consensus Estimate of $62 million.
Net sales from Subscription rose to $47.7 million, up from $44.2 million in the prior-year quarter. The figure surpassed our estimate of $46.9 million. SaaS ARR (annual recurring revenue) improved 16% year over year to $134.8 million.
In High Tech business, Taiwan Semiconductor deployed Model N’s channel data management and revenue cloud to automate various key processes. A prominent manufacturer of power conversion, measurement and control solutions also selected Model N’s solution during the quarter. These developments supported the top line in this vertical.
In business services, the company witnessed solid momentum. United Therapeutics utilizes the newly launched State Price Transparency Management business services offering. Moderna also extended usage of MODN’s business services to better manage their membership, contract administration and rebate processing.
In Life Sciences, Model N continues to see healthy demand among its existing customer base, backed by new product launches. Novartis utilized Model N Engage to enhance operational excellence. A global biopharmaceutical company, Apellis Pharmaceuticals, also selected MODN’s Global Launch Excellence solution during the quarter.
Professional Services revenues totaled $15.8 million, up from $14.9 million a year ago, driven by growing demand for the company’s mission-critical solutions. The top line beat our estimate of $15.1 million.
Other Details
Non-GAAP gross profit increased to $38.3 million from $36.1 million a year ago, with respective margins of 60.3% and 61%. Adjusted EBITDA was $9.9 million, up from $9.1 million in the prior-year quarter. Non-GAAP operating income stood at $9.6 million compared with $8.9 million in the year-earlier quarter.
Cash Flow & Liquidity
In the December quarter, Model N generated $2.1 million cash from operating activities against a cash utilization of $18.3 million in the year-ago period. As of Dec 31, 2023, it had $303.4 million in cash and cash equivalents with $280.8 million of long-term debt.
Outlook
For the second quarter of fiscal 2024, the company expects total revenues between $63.5-64.5 million. Subscription revenues are expected in the range of $48.5-$49 million. Adjusted EBITDA is projected to be between $9 million and $10 million. Non-GAAP operating income is estimated within $9.2-$10.2 million, while non-GAAP earnings per share are estimated in the band of 24-27 cents.
For fiscal 2024, management expects total revenues in the band of $260.5-$263.5 million. Subscription revenues are anticipated in the range of $193.5-$195.5 million. Adjusted EBITDA is forecasted within $48-$51 million. Non-GAAP operating income is expected within $46.9-$49.9 million, while non-GAAP earnings are anticipated to be within $1.25-$1.32 per share.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -160% due to these changes.
VGM Scores
At this time, Model N has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Model N has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Model N, Inc. (MODN) : Free Stock Analysis Report
